Home Wayfair Sees Long-Term Value in Its Strategic Conviction
November 8, 2022

Wayfair Sees Long-Term Value in Its Strategic Conviction

By Peter Giannetti


Big plans in business are often easier said than done. On top of that, near-term needs can become so unexpectedly urgent that they can cloud sensible strategic vision for the long term. Wayfair is hoping to convince stockholders, employees, suppliers and other interested parties that neither sentiment is a given.

Wayfair’s primary charge for the first two decades of its existence — hard to believe it has been 20 years — was to drive its valuation on rapid sales growth and market share accumulation in what in the tech space has been a common brand- and business-building exercise promising eventual profitability once a sturdy foundation is cemented. Wayfair finally seemed poised for steady operating profit until it flew into the strong headwinds of rising e-commerce customer acquisition and retention costs, declining post-pandemic home furnishings sales and inflation among other challenges.

It is enough to warrant drastic short-term reactions that could render previous strategic intentions delayed or unfulfilled. It might have alarmed observers to learn Wayfair, like so many other operators slashing payroll in an inflation-riddled, softer retail marketplace, was dismissing 900 employees as a big initial step in driving a planned $500 million in cost reductions. It should also be encouraging to all interested parties, however, to hear Wayfair chief Niraj Shah doubling down on many of the company’s longer-term objectives to counter a rough third-quarter financial report.

Shah insists Wayfair has reached a scale in which profitability and growth can co-exist, and the company is on the way to being in a “state of self-funding once more.” In the same breath, he talks about driving that $500 million in cost efficiency while reemphasizing the need for Wayfair to “nail the basics” to earn customer and supplier loyalty by investing in interesting products, a great website experience and fast, high-caliber fulfillment.

Wayfair is working to remain proactive even when reactive maneuvering seems to be a necessary first order of business. As its rivals have adopted a more promotional approach to business to combat excessive inventory and inflation, for example, Wayfair moved quickly to reset its promotional calendar, including a second Way Day event. The urgency of such a pivot, though, didn’t interrupt longer-view initiatives to drive shopper and supplier loyalty, including upgrading customer service to better manage delivery snags and encouraging vendors to take advantage of its CastleGate logistics system.

Shah said Wayfair expects to register break-even EBITDA early in 2023 before generating positive free cash flow shortly thereafter. “From there, we’ll drive toward a mid-single-digit adjusted EBITDA margin level that we will philosophically treat as a lower bound of profitability for the business,” he said. “As we look to the future, this foundation will enable us to not only drive continued investment into the big and bold ideas that we have planned for Wayfair’s next 20 years but also deliver profitability in a consistent manner.”

To Shah, it is all about “controlling the controllables” to stay the course while adapting and adjusting for today’s economic environment.

“We are all focused on taking the steps needed to reach adjusted EBITDA profitability and cash flow neutrality in short order,” Shah said. “We have direct visibility to over half a billion dollars of savings, with work well underway to deliver this target in 2023. However, we are not stopping there and have identified meaningful incremental efficiency opportunities, which we are also actioning as we speak. Our execution against these initiatives is thoughtful and deliberate to ensure that we make progress toward our profitability targets without compromising the long-term growth potential in front of us.”

Nobody expects it to be easy for Wayfair to do what Shah says. And at any given time, urgent near-term needs could very well challenge the company’s ability to keep its focus on initiatives intended to secure and sustain growth and profitability.

As the marketplace assesses the long-term valuation of Wayfair, however, such strategic conviction could end up being worth a lot.

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